There’s a new report, produced by Denis Frankenberger, set to hit Louisville in a day or so about the arena debacle. To say it’s damning would be an understatement.
The University of Louisville Athletic Association won’t be happy.
The too long, didn’t read of the report? That the KFC Yum! Center will fail and leave taxpayers on the hook:
- Over $800 million in Debt
- Operating Costs Exceeding $92,000 per Day
- Lease Giving Away Millions to Tenant and Others
- Losing more than $50,000 per day during 2011, more than $37000 per day during 2012
- More than $30 million in losses since opening
- Financial Impossibility to Succeed
- A Lease that is Choking the Financial Life from the Arena (unless the Lease is renegotiated)
With all of that, there’s little left to wonder about why UofL would fight against bringing an NBA team to town. It’s because UofL would lose its sweetheart deal that’s subsidized by taxpayers under the guise of bettering downtown.
The fact is, after its first two full years of operation the following financial information obtained by the author, including an analysis of the audited financial statements, yields the ugly truth.7 Louisville’s beloved KFC Yum! Center Arena simply cannot survive unless the terms of its lease with it prime tenant the University are renegotiated into a normal lease for a “tenant” as opposed to the existing lease, which resembles an “owner’s lease” – except that the taxpayers pay for the losses instead of the owner. With this knowledge an interesting question arises: How and why was the lease structured in such a manner to begin with?
In fact, the lease between the Arena Authority and the University which extends through September 30, 2044, is so onerous with such enormous disproportionate percentages of revenues going to the University, the Arena Authority with its more than $800 million dollar debt12, laboring under more than twice the Arena’s projected expenses13, has absolutely no chance of financial survival.
In fact, in a September 10, 2012 Board of Directors meeting Metro Council President and Arena Director Jim King pointed out in a recitation to Mayor Greg Fischer that certain payments to the Arena Authority were needed “to prevent a debt service payment default on the Authority’s outstanding bonds.”14
This plea of course was made AFTER “Arena officials have scraped together cash to deal with previous shortfalls nearly emptying a [$3 million] building renovation fund and notifying Louisville Metro government that more city money may be needed as early as next spring” as reported in a December 23, 2012 Courier Journal front page article.
There have been resignations and many changes of the Arena board members since its inception. Even today there are significant inappropriate close ties between Arena board members and the University. Inexplicably there have been directors serving on both the Arena and the University’s Athletic Association boards.
One VIP Private Suite @ no charge, including the cost of its build-out, has been granted to Humana Corp for 20 years valued @ $1.25 million ostensibly for having sold property to the Arena for $11 million (the then market value) and after the Arena paying an additional $3 million to Humana as compensation for it having to move its employees.
[In response to a request to the Arena for a copy of a verified appraisal of the then market value of the real property associated with the 2007 “Property Sale and Relocation Agreement with Humana, Inc”, the Arena’s accounting firm responded on 1-22-13: “We are attempting to locate the Humana appraisal” however they included a copy of the PVA report indicating a $10,090,000 value.46
More importantly the Arena failed to answer a request for the cost associated with relocating Humana employees after the purchase. This is important because the specific stated basis for Humana’s free Arena Suite is for the Arena’s “reimbursement” for the then (2007) “anticipated” additional employee relocation cost over the $3 million paid by the Arena, which had been estimated at $1.8 million.47
However to date, there has been no reconciliation or data provided by the Arena supporting the Arena’s documented $1.25 million gift to Humana of a built-out Arena Suite for 20 years.]48
Arena pays to University 50% of all revenue received by Arena from the sale of the balance (of 90%) of the Signage inside and outside the Arena excluding the 10% of the Permanent Signage reserved for the University of which University receives 100% of the revenues.
The bottom line is Metro Louisville and State taxpayers are subsidizing the millions of dollars of revenues the University of Louisville Athletic Association is receiving from Arena activities at the financial peril of the Arena, and the billion dollars of financial support provided by the taxpayers and the bondholders, while the Arena is struggling for its financial life.
You may read all about the report at BillionDollarBasketball.com. The site isn’t live at the moment but is expected to be quite soon.
In the interim, you may access a copy of the report by clicking here (Warning: PDF Link).